SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
AMENDMENT NO. 1
__________________
QUARTERLY REPORT UNDER SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 17, 1998
Commission file numbers 33-89818, 33-96568, 333-08041 and 333-57107
CLUB CORPORATION INTERNATIONAL
(Exact name of registrant as specified in its charter)
NEVADA 75-1311242
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification no.)
3030 LBJ FREEWAY, SUITE 700 DALLAS, TEXAS 75234
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (972) 243-6191
Former name, former address and former fiscal year,
if changed since last report: NONE
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No.
-----
The number of shares of the Registrant's Common Stock outstanding as of June 17,
1998 was 84,975,103.
<PAGE>
CLUB CORPORATION INTERNATIONAL
TABLE OF CONTENTS
This Amendment No. 1 amends Part I, Item 1 and Item 2, and Part II, Item 6 of
the Quarterly Report on Form 10-Q filed with the Securities and Exchange
Commission on August 3, 1998. The complete text of each item which has been
amended is included. Text of items which have not been amended are not
included.
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Independent Accountants' Review Report
Consolidated Balance Sheet
Consolidated Statement of Operations
Consolidated Statement of Stockholders' Equity
Consolidated Statement of Cash Flows
Condensed Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
--------------------------------------
The Board of Directors
Club Corporation International:
We have reviewed the consolidated balance sheet of Club Corporation
International and subsidiaries (ClubCorp) as of June 17, 1998 and June 11, 1997
and the related consolidated statements of operations for the twelve weeks and
twenty four weeks ended June 17, 1998 and June 11, 1997 and stockholders' equity
and cash flows for the twenty four weeks ended June 17, 1998 and June 11, 1997,
respectively. These consolidated financial statements are the responsibility of
the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the consolidated financial statements referred to above for them to
be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of ClubCorp as of December 31, 1997
and the related consolidated statements of operations, stockholders' equity and
cash flows for the year then ended (not presented herein); and in our report
dated February 27, 1998 except as to Note 2 which is as of October 13, 1998, we
expressed an unqualified opinion on those consolidated financial statements. In
our opinion, the information set forth in the accompanying consolidated balance
sheet as of December 31, 1997 is fairly presented, in all material respects, in
relation to the consolidated balance sheet from which it has been derived. Our
report on the consolidated financial statements of ClubCorp refers to a
retroactive change in the Company's method of accounting for membership
initiation deposits and fees and the related incremental direct selling.
As discussed in Note 2 to the accompanying consolidated financial statements
ClubCorp changed its method of accounting for membership initiation deposits and
fees and the related incremental direct selling costs and has restated the
consolidated financial statements to give retroactive effect to this change.
KPMG Peat Marwick LLP
Dallas, Texas
July 23, 1998, except as to Note 2
which is as of October 13, 1998
<PAGE>
CLUB CORPORATION INTERNATIONAL
- -------------------------------------------------------------
CONSOLIDATED BALANCE SHEET
(Dollars in thousands, except share amounts)
(Unaudited)
<TABLE>
<CAPTION>
June 11, December 31, JUNE 17,
Assets 1997 1997 1998
- ------ ----------- -------------- -----------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 122,874 $ 101,419 $ 81,863
Membership and other receivables, net 74,802 76,522 80,677
Inventories 14,975 14,954 17,609
Other assets 12,385 14,968 13,032
----------- -------------- -----------
Total current assets 225,036 207,863 193,181
Property and equipment, net 669,560 677,227 706,213
Other assets 120,699 143,584 156,990
----------- -------------- -----------
$1,015,295 $ 1,028,674 $1,056,384
=========== ============== ===========
Liabilities and Stockholders' Equity
- ------------------------------------
Current liabilities:
Accounts payable and accrued liabilities $ 46,470 $ 57,996 $ 50,193
Long-term debt - current portion 82,879 74,621 16,467
Other liabilities 91,522 79,995 98,113
----------- -------------- -----------
Total current liabilities 220,871 212,612 164,773
Long-term debt 204,246 181,236 240,794
Other liabilities 136,054 109,493 109,863
Membership deposits 78,258 83,066 88,328
Redemption value of common stock held by benefit plan 44,879 53,652 56,786
Stockholders' equity:
Common stock, $.01 par value, 100,000,000 shares
authorized, 90,219,408 issued, 85,267,515 outstanding
at June 11, 1997, 85,003,839 at December 31, 1997
and 84,975,103 at June 17, 1998 902 902 902
Additional paid-in capital 10,589 10,607 10,987
Accumulated other comprehensive income (130) 260 (94)
Retained earnings 358,329 419,061 427,069
Treasury stock (38,703) (42,215) (43,024)
----------- -------------- -----------
Total stockholders' equity 330,987 388,615 395,840
----------- -------------- -----------
$1,015,295 $ 1,028,674 $1,056,384
=========== ============== ===========
</TABLE>
See accompanying condensed notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
12 WEEKS ENDED 24 WEEKS ENDED
---------------------- ----------------------
June 11, JUNE 17, June 11, JUNE 17,
1997 1998 1997 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Operating revenues $ 197,572 $ 211,496 $ 354,658 $ 383,344
Operating costs and expenses 160,477 163,833 303,375 316,362
Selling, general and administrative expenses 15,564 17,565 29,809 31,981
---------- ---------- ---------- ----------
Operating income 21,531 30,098 21,474 35,001
Gain (loss) on divestitures 9,501 (2,408) 11,902 (2,062)
Interest and investment income 1,764 1,837 3,671 3,986
Interest expense (8,221) (7,376) (16,206) (14,871)
---------- ---------- ---------- ----------
Income from continuing operations before income tax
provision, minority interest and extraordinary item 24,575 22,151 20,841 22,054
Income tax provision (1,453) (8,728) (2,412) (9,022)
Minority interest (70) (443) (70) (714)
---------- ---------- ---------- ----------
Income from continuing operations
before extraordinary item 23,052 12,980 18,359 12,318
Discontinued operations:
Gain on disposal of financial services segment,
net of income tax provision of $15,221 - - 25,146 -
---------- ---------- ---------- ----------
Income before extraordinary item 23,052 12,980 43,505 12,318
Extraordinary item - loss on extinguishment of debt,
net of income taxes of $634 - (1,176) - (1,176)
---------- ---------- ---------- ----------
Net income $ 23,052 $ 11,804 $ 43,505 $ 11,142
========== ========== ========== ==========
Basic and diluted earnings per share:
Income from continuing operations
before extraordinary item $ .27 $ .15 $ .22 $ .14
Discontinued operations - - .29 -
Extraordinary item - loss on extinguishment of debt - (.01) - (.01)
---------- ---------- ---------- ----------
Net income $ .27 $ .14 $ .51 $ .13
========== ========== ========== ==========
</TABLE>
See accompanying condensed notes to consolidated financial statements.
<PAGE>
CLUB CORPORATION INTERNATIONAL
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Twenty Four Weeks Ended June 11, 1997 and June 17, 1998
(Dollars in thousands, except share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Accumulated
other
Common stock (100, 000,000 shares comprehensive
authorized, par value $.01 per share income
------------------------------------------- -------------
Foreign
Treasury Additional Currency
Shares Stock Shares Par Paid-in Translation
Issued Shares Outstanding Value Capital Adjustment
---------- ---------- ------------ ------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1996, as restated 90,219,408 4,826,167 85,393,241 $ 902 $ 10,380 $ (54)
Net income - - - - - -
Purchase of treasury stock - 179,431 (179,431) - - -
Stock issued in connection with bonus plans - (53,705) 53,705 - 209 -
Foreign currency translation adjustment - - - - - (76)
Market adjustment - - - - - -
Change in redemption value of common
stock held by benefit plan - - - - - -
---------- ---------- ------------ ------ ----------- -------------
Balances at June 11, 1997, as restated 90,219,408 4,951,893 85,267,515 $ 902 $ 10,589 $ (130)
========== ========== ============ ====== =========== =============
Balances at December 31, 1997, as restated 90,219,408 5,215,569 85,003,839 $ 902 $ 10,607 $ 260
Net income - - - - - -
Purchase of treasury stock - 90,885 (90,885) - - -
Stock issued in connection with bonus plans - (62,149) 62,149 - 380 -
Foreign currency translation adjustment - - - - - (354)
Change in redemption value of common
stock held by benefit plan - - - - - -
---------- ---------- ------------ ------ ----------- -------------
Balances at June 17, 1998, as restated 90,219,408 5,244,305 84,975,103 $ 902 $ 10,987 $ (94)
========== ========== ============ ====== =========== =============
Accumulated
other
comprehensive
income
------------------
Unrealized
Gains or
Losses on
Investments in Total
Debt and Retained Treasury Stockholders'
Equity Securities Earnings Stock Equity
------------------- ---------- ---------- ---------------
<S> <C> <C> <C> <C>
Balances at December 31, 1996, as restated $ (46) $ 316,470 $ (37,100) $ 290,552
Net income - 43,505 - 43,505
Purchase of treasury stock - - (2,019) (2,019)
Stock issued in connection with bonus plans - - 416 625
Foreign currency translation adjustment - - - (76)
Market adjustment 46 - - 46
Change in redemption value of common
stock held by benefit plan - (1,646) - (1,646)
------------------- ---------- ---------- ---------------
Balances at June 11, 1997, as restated $ - $ 358,329 $ (38,703) $ 330,987
=================== ========== ========== ===============
Balances at December 31, 1997, as restated $ - $ 419,061 $ (42,215) $ 388,615
Net income - 11,142 - 11,142
Purchase of treasury stock - - (1,312) (1,312)
Stock issued in connection with bonus plans - - 503 883
Foreign currency translation adjustment - - - (354)
Change in redemption value of common
stock held by benefit plan - (3,134) - (3,134)
------------------- ---------- ---------- ---------------
Balances at June 17, 1998, as restated $ - $ 427,069 $ (43,024) $ 395,840
=================== ========== ========== ===============
</TABLE>
See accompanying condensed notes to consolidated financial statements.
<PAGE>
CLUB CORPORATION INTERNATIONAL
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
24 WEEKS ENDED
----------------------
June 11, JUNE 17,
1997 1998
---------- ----------
<S> <C> <C>
Cash flows from operations:
Net income $ 43,505 $ 11,142
Adjustments to reconcile net income to cash flows
provided from operations:
Depreciation and amortization 22,207 24,367
(Gain) loss on divestitures (11,902) 2,062
Minority interest in net income of subsidiaries 70 714
Gain on disposal of financial services segment (25,146) -
Extraordinary item - loss on extinguishment of debt - 1,810
Equity in losses in partnerships and joint ventures 847 188
Amortization of discount on membership deposits 2,833 3,175
Deferred income taxes 1,364 7,310
Decrease in real estate held for sale 3,401 4,590
Increase in membership and other receivables, net (1,914) (9,527)
Decrease in accounts payable and accrued liabilities (8,210) (3,659)
Increase in deferred membership dues 8,897 9,963
Other 10,886 1,600
---------- ----------
Cash flows provided from operations 46,838 53,735
Cash flows from investing activities:
Additions to property and equipment (26,712) (35,907)
Development of real estate ventures (2,971) (6,919)
Development of new facilities (2,463) (5,708)
Acquisition of facilities (2,960) (9,038)
Investment in joint ventures (800) (15,687)
Proceeds from disposition of subsidiaries and assets, net 11,129 4,697
Proceeds from disposal of financial services segment, net 89,968 -
Other 5,772 484
---------- ----------
Cash flows provided from (used by) investing activities 70,963 (68,078)
Cash flows from financing activities:
Borrowings of long-term debt 10,187 221,535
Repayments of long-term debt (62,501) (222,469)
Membership deposits received, net 605 1,210
Treasury stock transactions, net (2,019) (1,312)
Repayment of Federal Home Loan bank advances (3,153) -
Dividend paid to minority shareholder of financial services segment (12,500) (4,177)
---------- ----------
Cash flow used by financing activities (69,381) (5,213)
---------- ----------
Total net cash flows 48,420 (19,556)
Cash and cash equivalents at beginning of period 74,454 101,419
---------- ----------
Cash and cash equivalents at end of period $ 122,874 $ 81,863
========== ==========
</TABLE>
See accompanying condensed notes to consolidated financial statements.
<PAGE>
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
--------------------------------------------------------
Consolidation
- -------------
The consolidated financial statements include the accounts of Club Corporation
International (Parent) and its subsidiaries (collectively ClubCorp) except for
certain subsidiaries of Franklin Federal Bancorp, a Federal Savings Bank
(Franklin). On January 2, 1997, Franklin sold certain assets and transferred
certain liabilities to Norwest Corporation. Thus, Franklin is classified as a
discontinued operation in the accompanying consolidated financial statements.
Interim presentation
- ---------------------
The accompanying consolidated financial statements have been prepared by
ClubCorp and are unaudited. Certain information and footnote disclosures
normally included in financial statements presented in accordance with generally
accepted accounting principles have been omitted from the accompanying
statements. ClubCorp's management believes the disclosures made are adequate to
make the information presented not misleading. However, the financial statements
should be read in conjunction with the financial statements and notes thereto of
ClubCorp for the year ended December 31, 1997 which were a part of ClubCorp's
Form 10-K and Form 10-K/A Amendment No. 1.
In the opinion of ClubCorp management, the accompanying unaudited consolidated
financial statements reflect all adjustments (consisting of normal recurring
accruals) necessary to present fairly the consolidated financial position of
ClubCorp as of June 11, 1997 and June 17, 1998 and the consolidated results of
operations and cash flows for the twelve weeks and twenty four weeks ended June
11, 1997 and June 17, 1998, respectively. Interim results are not necessarily
indicative of fiscal year performance because of the impact of seasonal and
short-term variations.
Earnings per share
- --------------------
Earnings per share for the twelve weeks ended June 11, 1997 and June 17, 1998 is
computed using the weighted average number of shares outstanding of 85,352,087
and 85,005,398 for basic and 85,799,131 and 86,100,933 for diluted,
respectively. For the twenty four weeks ended June 11, 1997 and June 17, 1998,
earnings per share is computed using the weighted average number of shares
outstanding of 85,399,516 and 85,035,693 for basic and 85,857,664 and 86,461,292
for diluted, respectively. The weighted average shares outstanding used in the
calculation of diluted earnings per share includes options to purchase common
stock.
Reclassifications
- -----------------
Certain amounts previously reported have been reclassified to conform with the
current period presentation.
NOTE 2. CHANGE IN ACCOUNTING POLICY
----------------------------------------
ClubCorp has changed its accounting policy for membership initiation deposits
and fees to defer such revenues and recognize them on a straight line basis over
the expected average life of active membership. Revenues from membership
initiation deposits and fees were previously recognized by ClubCorp as revenue
on the date of acceptance of the member. In addition to the deferral of
membership initiation deposits and fees, ClubCorp has deferred the related
incremental direct selling costs of membership initiation deposits and fees
(primarily commissions) and is recording such costs in the same manner as the
revenues are recognized. Accordingly, the accompanying consolidated financial
statements have been retroactively adjusted to reflect this change for all
periods presented. The impact of the restatement is summarized as follows
(dollars in thousands, except per share amounts):
<TABLE>
<CAPTION>
12 Weeks 24 Weeks 12 WEEKS 24 WEEKS
Ended Ended ENDED ENDED
---------- ---------- ---------- ----------
June 11, 1997 JUNE 17, 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Operating revenues $ (4,195) $ (6,232) $ (1,414) $ (1,525)
Operating income (4,277) (6,487) (1,393) (1,687)
Income from continuing
operations before
income tax provision,
minority interest and
extraordinary item (4,286) (6,371) (1,393) (1,687)
Income tax provision 377 411 290 439
Income from
continuing operations
before extraordinary
item (3,908) (6,087) (1,341) (1,038)
---------- ---------- ---------- ----------
Net income $ (3,908) $ (6,087) $ (1,341) $ (1,038)
========== ========== ========== ==========
Basic and diluted
earnings per share:
Income from
continuing operations
before extraordinary
item $ (.05) $ (.07) $ (.02) $ (.01)
---------- ---------- ---------- ----------
Net income $ (.05) $ (.07) $ (.02) $ (.01)
========== ========== ========== ==========
</TABLE>
In addition, this change resulted in a decrease in retained earnings of
$67,332,000, $70,223,000 and $71,261,000 as of June 11, 1997, December 31, 1997
and June 17, 1998, respectively.
ClubCorp now presents changes in the redemption value of common stock held by
the benefit plan as a direct charge to retained earnings instead of a
separate component of stockholders' equity. This reclassification
resulted in a decrease in retained earnings of $44,879,000, $53,652,000
and $56,786,000 as of June 11, 1997, December 31, 1997 and June 17, 1998,
respectively. This reclassification had no net effect on total
stockholders' equity.
NOTE 3. TOTAL COMPREHENSIVE INCOME
- --------------------------------------
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income".
SFAS 130 requires that an entity include in total comprehensive income certain
amounts which were previously recorded directly to stockholders' equity. For the
twelve weeks and twenty four weeks ended June 11, 1997 and June 17, 1998 the
other comprehensive income amounts included in total comprehensive income
consisted of unrealized gains on investments in debt and equity securities and
foreign currency translation adjustments. Total comprehensive income was
$22,996,000 and $11,580,000 for the twelve weeks ended and $43,475,000 and
$10,788,000 for the twenty four weeks ended June 11, 1997 and June 17, 1998,
respectively.
NOTE 4. OMNIBUS STOCK OPTION PLAN
- --------------------------------------
The Club Corporation International Omnibus Stock Plan (Plan) was adopted to be
effective February 1998. The Plan provides for granting to key employee partners
options to purchase shares of common stock at a price not less than fair market
value at the date of grant. The vesting will be determined at the time of grant
and will generally be three to five years. The initial grant was 1,739,000
options with a five year vesting and a ten year expiration date. None of these
options are currently exercisable.
NOTE 5. SENIOR CREDIT FACILITY
----------------------------------
On May 27, 1998, Parent finalized a five-year $300,000,000 unsecured revolving
credit facility agreement with a group of banks. The obligations under this
facility are guaranteed by certain of its subsidiaries. The interest rate is
determined using a LIBOR-based pricing matrix as defined in the agreement. As
of June 17, 1998, Parent has used this facility to refinance approximately
$174,944,000 in existing debt and related accrued interest of its subsidiaries.
In conjunction with this refinancing, unamortized loan costs and discounts on
long-term debt totaling $1,810,000 are shown in the accompanying Consolidated
Statement of Operations as an extraordinary item - loss on extinguishment of
debt. The amount outstanding under this agreement, including letters of credit
of $14,657,000, as of June 17, 1998, is $189,657,000 at an interest rate of
LIBOR plus 62.5 basis points.
NOTE 6. COMMITMENTS AND CONTINGENCIES
- -----------------------------------------
ClubCorp is subject to certain pending or threatened litigation and other
claims. Management, after review and consultation with legal counsel, believes
ClubCorp has meritorious defenses to these matters and that any potential
liability from these matters would not materially affect ClubCorp's consolidated
financial statements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
Club Corporation International ("ClubCorp" or the "Company") is a holding
company incorporated under the laws of the State of Nevada that, through its
subsidiaries, owns, operates and/or manages country clubs, golf clubs, public
golf courses, city clubs, city/athletic clubs, athletic clubs, resorts, and
certain related real estate through sole ownership, partial ownership (including
joint venture interests) and management agreements. The Company's operations are
organized into four business segments according to the type of facility or
service - resorts, country club and golf facilities, city facilities, and
international and other businesses. The Company's primary sources of revenue
include membership dues, fees, and deposits, food and beverage sales, revenues
from golf operations and lodging.
The predecessor corporation to ClubCorp was organized in 1957 under the
name Country Clubs, Inc. All references herein to ClubCorp shall also include
Country Clubs, Inc. and its successor corporations. For purposes of this
document, references to the "Company" include ClubCorp's various subsidiaries.
However, each of ClubCorp and its subsidiaries is careful to maintain its
separate legal existence, and general references to the Company should not be
interpreted in any way to reduce the legal distinctions between the subsidiaries
or between ClubCorp and its subsidiaries.
The following discussion of the Company's financial condition and results
of operations for the 12 and 24 weeks ended June 11, 1997 and June 17, 1998
should be read in conjunction with the Company's Annual Report on Form 10-K and
Form 10-K/A Amendment No. 1 for the year ended December 31, 1997, as filed with
the Securities and Exchange Commission.
RESULTS OF OPERATIONS
12 WEEKS ENDED JUNE 17, 1998 COMPARED TO 12 WEEKS ENDED JUNE 11, 1997
Consolidated Operations
Operating revenues increased 7.0% to $211.5 million for the 12 weeks ended
June 17, 1998 from $197.6 million for the 12 weeks ended June 11, 1997 due
primarily to increased revenues at mature facilities. Operating revenues of
mature facilities (i.e., those for which a comparable period of activity exists,
generally those owned for at least eighteen months to two years) increased 8.4%
to $194.3 million from $179.2 million for the same period.
Operating costs and expenses, consisting of direct operating costs,
facility rentals, maintenance, and depreciation and amortization, increased
2.1%, to $163.8 million for the 12 weeks ended June 17, 1998 from $160.5 million
for the 12 weeks ended June 11, 1997, principally reflecting increased operating
costs and expenses at mature facilities which increased 4.5% to $157.1 million
from $150.4 million for the same period, due primarily to increases in costs of
sales for food and beverage, golf operations, lodging, real estate sales and
payroll costs.
Selling, general and administrative expenses increased 12.8% to $17.6
million from $15.6 million, due primarily to bonus accruals for executives,
regional and corporate management.
Interest expense decreased 9.8% to $7.4 million from $8.2 million for the
same period due mainly to 1997 and 1998 divestitures.
Segment and Other Information - 12 Weeks
Resorts
The following table presents certain summary financial data and other
operating data for the Company's resort segment for the 12 week periods ended
June 11, 1997 and June 17, 1998:
<TABLE>
<CAPTION>
MATURE RESORTS TOTAL RESORTS
----------------- -----------------
1997 1998 1997 1998
------- -------- ------- --------
(dollars in thousands)
<S> <C> <C> <C> <C>
Number of facilities at period end 4 4 8 6
Operating revenues $38,155 $ 43,074 $43,397 $ 45,743
Operating costs and expenses 30,596 32,914 37,597 36,684
------- -------- ------- --------
Segment operating income $ 7,559 $ 10,160 $ 5,800 $ 9,059
======= ======== ======= ========
</TABLE>
Operating revenues from total resorts increased 5.4% due primarily to
increased revenues at mature facilities offset to some extent by the effect of
divestitures. Operating revenues from mature resorts increased 12.9%, which is
indicative of increases of 7.8 percentage points in the occupancy rate and 6.0%
in the average daily revenue per occupied room for Pinehurst, Homestead, and
Barton Creek. Pinehurst continued to experience significant increases in
operating revenues which are attributable to its hosting of the 1999 U.S. Open.
Country Club and Golf Facilities
The following table presents certain summary financial data and other
operating data for the Company's country club and golf facility segment for the
12 week periods ended June 11, 1997 and June 17, 1998:
<TABLE>
<CAPTION>
MATURE TOTAL
COUNTRY CLUB COUNTRY CLUB
AND GOLF AND GOLF
FACILITIES FACILITIES
-------------------- --------------------
1997 1998 1997 1998
----------- ------- ----------- -------
(dollars in thousands)
<S> <C> <C> <C> <C>
Number of facilities at period end 98 98 112 110
Operating revenues $ 84,532 $92,018 $ 87,042 $95,986
Operating costs and expenses 68,248 73,111 70,383 76,813
----------- ------- ----------- -------
Segment operating income $ 16,284 $18,907 $ 16,659 $19,173
=========== ======= =========== =======
</TABLE>
Operating revenues from total country club and golf facilities increased
10.3% primarily due to increased revenues at mature properties. Operating
revenues from mature country club and golf facilities increased 8.9% from the 12
weeks ended June 11, 1997 to the 12 weeks ended June 17, 1998 due to an increase
in members, the opening of several courses at existing facilities which were
closed for renovation during the prior year, and the acquisition of pro shops
previously owned by golf professionals.
City Facilities
The following table presents certain summary financial data and other
operating data for the Company's city facility segment for the 12 week periods
ended June 11, 1997 and June 17, 1998:
<TABLE>
<CAPTION>
MATURE CITY TOTAL CITY
FACILITIES FACILITIES
-------------------- --------------------
1997 1998 1997 1998
----------- ------- ----------- -------
(dollars in thousands)
<S> <C> <C> <C> <C>
Number of facilities at period end 91 91 91 94
Operating revenues $ 56,540 $59,245 $ 57,072 $60,161
Operating costs and expenses 51,571 51,127 54,775 51,854
----------- ------- ----------- -------
Segment operating income $ 4,969 $ 8,118 $ 2,297 $ 8,307
=========== ======= =========== =======
</TABLE>
Operating revenues from total city facilities increased 5.4% primarily due
to increased revenues at mature facilities. Operating revenues from mature city
facilities increased by 4.8% due to an increase in members and facilities usage.
International and Realty
International operating revenues increased to $1.7 million from $0.4
million, primarily due to increased equity earnings from a city club in
Singapore and increased revenues from city clubs in Panama and Ecuador.
Realty operating revenues decreased 3.4% to $5.6 million from $5.8 million
due to decreased sales of land held for resale in connection with a golf
facility in Colorado.
24 WEEKS ENDED JUNE 17, 1998 COMPARED TO 24 WEEKS ENDED JUNE 11, 1997
Consolidated Operations
Operating revenues increased 8.1% to $383.3 million for the 24 weeks ended
June 17, 1998 from $354.7 million for the 24 weeks ended June 11, 1997 due
primarily to increased revenues at mature facilities. Operating revenues of
mature facilities (i.e., those for which a comparable period of activity exists,
generally those owned for at least eighteen months to two years) increased 7.2%
to $347.4 million from $324.1 million for the same period.
Operating costs and expenses, consisting of costs of services, facility
rentals and depreciation and amortization, increased 4.3%, to $316.4 million for
the 24 weeks ended June 17, 1998 from $303.4 million for the 24 weeks ended June
11, 1997, principally reflecting increased operating costs and expenses at
mature facilities which increased 4.5% to $301.6 million from $288.7 million for
the same period, due primarily to increases in costs of sales for food and
beverage, golf operations, real estate sales, lodging and payroll costs.
Selling, general and administrative expenses increased 7.4% to $32.0
million for the 24 weeks ended June 17, 1998 from $29.8 million for the 24 weeks
ended June 11, 1997, due primarily to incentive bonus accruals for executives
and corporate and regional management related to the expected attainment of
Company goals.
Interest expense decreased 8.0% to $14.9 million from $16.2 million for the
same period, due mainly to 1997 and 1998 divestitures.
Segment and Other Information - 24 Weeks
Resorts
The following table presents certain summary financial data and other
operating data for the Company's resort segment for the 24 week periods ended
June 11, 1997 and June 17, 1998:
<TABLE>
<CAPTION>
MATURE RESORTS TOTAL RESORTS
-------------------- -----------------
1997 1998 1997 1998
--------- --------- ------- --------
(dollars in thousands)
<S> <C> <C> <C> <C>
Number of facilities at period end 4 4 8 6
Operating revenues $ 63,709 $ 69,257 $71,011 $ 73,252
Operating costs and expenses 58,413 61,478 69,167 68,100
--------- --------- ------- --------
Segment operating income $ 5,296 $ 7,779 $ 1,844 $ 5,152
========= ========= ======= ========
Room nights available 183,601 183,127
Occupancy rate 46.0% 48.5%
Average daily room rate per occupied room $ 168 $ 178
Average daily revenue per occupied room $ 652 $ 726
</TABLE>
Operating revenues from total resorts increased 3.2% due primarily to
increased revenues at mature facilities offset to some extent by the effect of
divestitures. Operating revenues from mature resorts increased 8.7%, which is
indicative of increases of 2.5 percentage points in the occupancy rate, 6.0% in
the average daily room rate per occupied room, and 11.3% in the average daily
revenue per occupied room. Pinehurst continued to experience significant
increases in operating revenues which are attributable to its hosting of the
1999 U.S. Open.
The differences in operating revenues and operating costs and expenses
between mature resorts and total resorts are primarily attributable to the
Company's operations at Daufuskie Island ("Daufuskie"). ClubCorp purchased
Daufuskie at the end of 1996 for nominal consideration as a turn-around
opportunity. Daufuskie had operating losses of approximately $2.6 million for
the 24 weeks ended June 17, 1998 and has had aggregate operating losses of
approximately $9.4 million since it was acquired by ClubCorp at the end of 1996.
Country Clubs and Golf Facilities
The following table presents certain summary financial data and other
operating data for the Company's country club and golf facility segment for the
24 week periods ended June 11, 1997 and June 17, 1998:
<TABLE>
<CAPTION>
MATURE TOTAL
COUNTRY CLUB COUNTRY CLUB
AND GOLF AND GOLF
FACILITIES FACILITIES
--------------------- ---------------------
1997 1998 1997 1998
----------- -------- ----------- --------
(dollars in thousands)
<S> <C> <C> <C> <C>
Number of facilities at period end 98 98 112 110
Operating revenues $ 150,683 $162,251 $ 155,607 $169,233
Operating costs and expenses 128,033 134,917 133,080 141,718
----------- -------- ----------- --------
Segment operating income $ 22,650 $ 27,334 $ 22,527 $ 27,515
=========== ======== =========== ========
</TABLE>
Operating revenues from total country club and golf facilities increased
8.8% primarily due to increased revenues at mature facilities. Operating
revenues from mature country club and golf facilities increased 7.7% primarily
due to an increase in members, the opening of several courses at existing
facilities which were closed for renovation during the prior year, and the
acquisition of pro shops previously owned by golf professionals.
City Facilities
The following table presents certain summary financial data and other
operating data for the Company's city facility segment for the 24 week periods
ended June 11, 1997 and June 17, 1998:
<TABLE>
<CAPTION>
MATURE CITY TOTAL CITY
FACILITIES FACILITIES
---------------------- ---------------------
1997 1998 1997 1998
------------ -------- ----------- --------
(dollars in thousands)
<S> <C> <C> <C> <C>
Number of facilities at period end 91 91 91 94
Operating revenues $ 109,722 $115,842 $ 111,428 $117,450
Operating costs and expenses 102,248 105,255 104,302 106,759
------------ -------- ----------- --------
Segment operating income $ 7,474 $ 10,587 $ 7,126 $ 10,691
============ ======== =========== ========
</TABLE>
Operating revenues from total city facilities increased 5.4% due primarily
to increased revenues at mature facilities. Operating revenues from mature city
facilities increased by 5.6% due to an increase in members and facility usage.
International and Realty
International operating revenues increased to $3.6 million in 1998 from
$1.6 million in 1997 primarily due to increased equity earnings from a city club
in Singapore and increased revenues at city clubs in Panama and Ecuador.
Realty operating revenues increased to $12.1 million in 1998 from $8.3
million in 1997 primarily due to increased sales of real estate held for resale
in connection with the development of a golf facility in Colorado.
SEASONALITY
The Company's quarterly results fluctuate as a result of a number of
factors. Usage of the Company's country club and golf facilities and resorts
declines significantly during the first and fourth quarters, when colder
temperatures and shorter days reduce the demand for golf and golf-related
activities. The Company's city facilities generate a disproportionately greater
share of their yearly revenues in the fourth quarter, which includes the holiday
and year-end party season. As a result of these factors, the Company usually
generates a disproportionate share of its revenues in the second, third, and
fourth quarters of each year and has lower revenues in the first quarter. The
timing of purchases, sales, or leases of facilities also have caused and may
cause the Company's results of operations to vary significantly in otherwise
comparable periods. In addition, the Company's results can be affected by
non-seasonal and severe weather patterns.
LIQUIDITY AND CAPITAL RESOURCES
The Company finances its operations and capital replacements primarily
through cash flows from operations. Historically, the Company financed its
capital expansions through cash from operations and long-term debt at the
subsidiary level. Most capital expenditures other than capital replacements are
considered discretionary and could be curtailed in periods of low liquidity.
Capital replacements are planned expenditures made each year to maintain high
quality standards of facilities for the purpose of meeting existing members'
expectations and to attract new members. Capital replacements have ranged from
3.8% to 5.3% of operating revenues during the last three years. The Company
distinguishes capital expenditures made to refurbish and replace existing
property and equipment (i.e., capital replacements) from other discretionary
capital expenditures such as the expansion of existing facilities (i.e., capital
expansions) and acquisition or development of new facilities.
The Company has committed to provide updated technology to all of its
properties during 1998 and 1999. This technology will include installation of
point-of-sale hardware and software, replacement of computer hardware and
software to provide network capabilities, the purchase and development of
accounting software and hardware, and the installation of electronic time
management systems. In January of 1998, the Company signed an agreement with
Oracle Corporation to purchase new software for its accounting, purchasing, and
human resources applications. The decision to acquire Oracle's software was
made primarily to better enable management to improve operating efficiencies,
exceed member expectations, grow the people, performance, profits, and markets
by re-engineering processes using enterprise resource planning software.
Executive management intends to allocate the necessary resources to develop
additional technology applications and tools that will allow the properties to
operate more effectively and efficiently and to increase the value of membership
in conjunction with service excellence. Completion of the technology upgrade,
including conversion of the existing software, is expected to require
approximately $18.0 to $23.0 million in additional expenditures, of which $15.0
to $20.0 million will be capitalized. The upgrade will be funded through both a
capital lease with a bank over a four to five year period and through cash flows
from operations.
Computer programs were historically written using two digits rather than
four digits to identify the year. The computer might then recognize the two
digits "00" as year 1900 rather than year 2000 resulting in possible system
failures, miscalculations, and/or loss of data. This is referred to as the
"Year 2000" issue. Implementation of Oracle software and updating and/or
replacement of other software programs addresses the Company's Year 2000 issue
and is expected to be completed by November 1999. If the conversion is not
completed in a timely manner, Year 2000 issues may have a significant impact on
the Company's operations. The Company, however, has alternative plans in the
event Oracle is not implemented in a timely manner. The Company does not
believe that the Year 2000 problem will have a material adverse effect on the
business operations or the financial performance of the Company. There can be
no assurance, however, that the Year 2000 problem will not adversely affect the
Company and its business.
Membership deposits represent advance initiation deposits paid by members
and are refundable a fixed number of years (generally 30 years) after the date
of acceptance as a member. Management does not consider maturities of membership
deposits over the next five years to be significant. Due to the utilization of
long-term operating leases and membership deposits, the Company's leverage ratio
(i.e., long-term debt to total capital) has been maintained at manageable levels
which allow for adequate capability to finance future growth with long-term
debt.
All of the assets of the ClubCorp Stock Investment Plan ("Plan") are
invested in shares of ClubCorp's common stock, $.01 par value per share ("Common
Stock"), except for temporary investments of cash pending investment in Common
Stock. All distributions from the Plan are made in cash. As a means of providing
liquidity to the trustees of the Plan to meet their fiduciary obligations to
distribute cash to participants requesting withdrawals, ClubCorp has provided
the trustees the right ("Redemption Right") to cause the Company to redeem
Common Stock, held in trust on behalf of the Plan, at the most recent appraised
price as necessary to meet certain requirements. Withdrawals by participants and
terminations by, and/or resignations from, the Company of participants in excess
of anticipated levels could give rise to the exercise of withdrawal rights in
substantial amounts and place significant demands on the liquidity of the
Company. In such an event, the resources available to meet business expansion or
other working capital needs could be adversely affected. As of June 17, 1998,
the value of the Redemption Right was $56.8 million. The most recent appraised
price of the Common Stock is $15.04 as of June 17, 1998. The appraised value of
the Common Stock at June 17, 1998 is $1,278.0 million. The Redemption Right has
never been exercised by the Plan, although the Company from time to time has
repurchased Common Stock into treasury from certain stockholders. The Company
does not believe that the Redemption Right will be exercised to any material
extent by the Plan to meet any of its fiduciary obligations.
Club Corporation International finalized an agreement on May 27, 1998 with
a group of banks for a five-year $300.0 million unsecured senior revolving
credit facility. The Company's obligations under this facility are guaranteed
by certain of its subsidiaries. The interest rate is determined using a
LIBOR-based pricing matrix as defined in the agreement. It is anticipated that
interest rates under this facility will be substantially lower than interest
rates on indebtedness which was repaid. The Company has used the facility to
refinance approximately $174.9 million in existing debt and related accrued
interest of certain of its subsidiaries. In conjunction with this refinancing,
unamortized loan costs and discounts on long-term debt totaling $1.8 million are
shown in the accompanying Consolidated Statement of Operations as an
extraordinary item - loss on extinguishment of debt. The Company also intends
to use the facility for working capital, capital expenditures, and acquisitions.
The amount outstanding under this agreement, including letters of credit of
$14.8 million, as of June 17, 1998, is $189.7 million at an interest rate of
LIBOR plus 62.5 basis points.
The Company uses financial instruments, principally swaps, to manage its
interest rate exposure primarily from borrowings under its revolving credit
facility. These contracts generally hedge balances for periods and amounts
consistent with the Company's exposure and do not constitute investments
independent of such exposures. The Company does not use these financial
instruments for speculative or trading purposes. Swaps outstanding as of June
11, 1997 and June 17, 1998 were not material.
FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
Certain information in this Quarterly Report on Form 10-Q may contain
"forward-looking statements" within the meaning of Section 21E of the Securities
Exchange Act of 1934, as amended. All statements other than statements of
historical fact are "forward-looking statements" for purposes of these
provisions, including any projections of earnings, revenues or other financial
items, any statements of the plans and objectives of management for future
operations, any statements concerning proposed new products or services, any
statements regarding future economic conditions or performance and any statement
of assumptions underlying any of the foregoing. In some cases, forward-looking
statements can be identified by the use of terminology such as "may," "will,"
"expects," "plans," "anticipates," "estimates," "potential" or "continue," or
the negative thereof or other comparable terminology. Although the Company
believes that the expectations reflected in its forward-looking statements are
reasonable, it can give no assurance that such expectations or any of its
forward-looking statements will prove to be correct, and actual results could
differ materially from those projected or assumed in the Company's
forward-looking statements. Forward-looking statements are subject to inherent
risks and uncertainties, some of which are summarized in this section.
The success of the Company depends on the Company's ability to attract and
retain members at its clubs and maintain or increase usage of its facilities.
The Company continues to focus its efforts on membership enrollment programs and
quality service to reduce attrition as one of its top priorities for 1998. For
the last several years, the Company has focused on efforts to retain existing
members, attract new members and increase club usage through various programs
and membership activities, including increasing member participation by
continuing to implement member survey suggestions and increasing the involvement
of member boards of governors in planning day-to-day activities. Although
retention of existing members is one of ClubCorp's top priorities and the
Company devotes substantial efforts to ensuring that members and customers are
satisfied, many of the factors affecting club membership and facility usage are
beyond the control of the Company. There can be no assurance that the Company
will be able to maintain or increase membership or facilities' usage.
Significant periods of attrition rates exceeding enrollments rates or facility
usage below historical levels could have a material adverse effect on the
Company's business, operating results, and financial condition.
As of July 30, 1998, the Company was in the final stages of negotiations to
lease one property and build three properties. The consummation of the lease
and development of these properties is expected to require approximately $10.0
to $12.0 million in capital expenditures, to be funded primarily with cash flows
from operations and external financing of Club Corporation International. The
eventual outcome of the negotiations cannot be accurately predicted at this
time.
In June of 1998, the Financial Accounting Standards Board issued SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities". SFAS 133
establishes accounting and reporting standards for derivative instruments,
including certain derivatives embedded in other contracts, and for hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the balance sheet and measure those instruments at fair
value. SFAS 133 will be effective for the Company in its fiscal year ending in
2000. Due to the nature of the operations of the Company, the effect of
implementation of SFAS 133 is not expected to have a significant impact on the
financial position or results of operations of the Company.
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.21* - $300,000,000 Credit Agreement Among Club Corporation
International and Certain Lenders and Co-Agents dated May 27, 1998
10.22* - Second Amendment to the Club Corporation International
Executive Stock Option Plan
15.1 - Letter from KPMG Peat Marwick LLP regarding unaudited
interim financial statements
(b) Reports on Form 8-K
The Company filed Form 8-K for the quarterly period ended June 17, 1998
on May 4, 1998 which included Item 8. Change in Fiscal Year.
____________________________
* Filed as an exhibit to Form 10-Q for the quarterly period ended June 17,
1998 on August 3, 1998.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CLUBCORP INTERNATIONAL, INC.
(formerly Club Corporation International)
Date: October 22, 1998 By: /s/ James P. McCoy, Jr.
-----------------------------------------
James P. McCoy, Jr.
Executive Vice President and
Chief Financial Officer
(chief accounting officer)
EXHIBIT 15.1
Club Corporation International
Dallas, Texas
Ladies and Gentlemen:
Re: Registration Statement Nos. 33-89818, 33-96568, 333-08041 and 333-57107
With respect to the subject registration statements, we acknowledge our
awareness of the use therein of our report dated July 23, 1998, except as to
Note 2 which is as of October 13, 1998, related to our review of interim
financial information.
Pursuant to Rule 436(c) under the Securities Act of 1933, such report is not
considered part of a registration statement prepared or certified by an
accountant or a report prepared or certified by an accountant within the meaning
of sections 7 and 11 of the Act.
KPMG Peat Marwick LLP
Dallas, Texas
October 22, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEC FORM
10-Q/A AMENDMENT NO. 1 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 6-MOS
<FISCAL-YEAR-END> DEC-29-1998 DEC-31-1997
<PERIOD-END> JUN-17-1998 JUN-11-1997
<CASH> 81,863 122,874
<SECURITIES> 0 0
<RECEIVABLES> 100,056 83,814
<ALLOWANCES> 6,935 2,773
<INVENTORY> 17,609 14,975
<CURRENT-ASSETS> 193,181 225,036
<PP&E> 968,109 954,641
<DEPRECIATION> 261,896 285,081
<TOTAL-ASSETS> 1,056,384 1,015,295
<CURRENT-LIABILITIES> 164,773 224,702
<BONDS> 0 0
0 0
0 0
<COMMON> 902 902
<OTHER-SE> 394,938 330,085
<TOTAL-LIABILITY-AND-EQUITY> 1,056,384 1,015,295
<SALES> 109,664 102,859
<TOTAL-REVENUES> 383,343 354,658
<CGS> 94,970 90,722
<TOTAL-COSTS> 348,343 303,375
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 1,321 1,057
<INTEREST-EXPENSE> 14,871 16,206
<INCOME-PRETAX> 22,054 20,841
<INCOME-TAX> 9,022 2,412
<INCOME-CONTINUING> 12,318 18,359
<DISCONTINUED> 0 25,146
<EXTRAORDINARY> (1,176) 0
<CHANGES> 0 0
<NET-INCOME> 11,142 43,505
<EPS-PRIMARY> 0.12 0.51
<EPS-DILUTED> 0.12 0.51
</TABLE>
